Japan’s SoftBank Group smashed through analyst expectations and reported a quarterly profit for the first time in more than a year, providing a badly needed boost for the volatile tech conglomerate and its founder Masayoshi Son.
SoftBank said on Thursday it made a net profit of ¥950bn ($6.4bn) in its third quarter to the end of December, well ahead of analyst consensus forecasts of ¥373bn from Bloomberg and ¥196.5bn from data provider LSEG. A year ago, it recorded a ¥783bn loss.
The group’s tech-heavy Vision funds made an overall investment gain of ¥600.7bn, helped by gains from companies such as food delivery app DoorDash and warehouse robotics company Symbotic. In the same quarter last year, the Vision funds recorded a ¥730bn loss.
SoftBank last posted a profit in its fiscal second quarter of 2022, after selling a stake in Chinese ecommerce group Alibaba.
Strong results on Wednesday from UK chip designer Arm, which is 90 per cent owned by the Japanese group, had already pushed Softbank’s shares up 11 per cent on Thursday, for a year-to-date gain of more than 20 per cent.
In its second earnings report since going public in September, Arm said it was seeing higher royalty and licensing revenues amid strong artificial intelligence demand. That endorsed Son’s vision for SoftBank, which has focused on AI deals.
The SoftBank chief executive has been exploring a range of opportunities, including a potential investment in OpenAI and advanced discussions to fund the “iPhone of artificial intelligence”.
Last June, Son told shareholders the company was going on the “counteroffensive” after years of asset sales and losses at its Vision funds, including on start-ups such as WeWork, the once high-flying desk-renting start-up that declared bankruptcy last year.
Arm’s surging stock market value, as well as a December windfall of $7.6bn worth of new shares in T-Mobile — awarded as part of a merger deal with Sprint in 2020 — improved the results and have burnished the group’s image with investors.
“It was a solid quarter,” said Kirk Boodry at Astris Advisory. “Arm drove the share price today, but the quarterly results offer a reminder that other parts of the business can contribute, as both T-Mobile and Vision Fund helped SoftBank to its first profit in five quarters. We were encouraged by the VF results, particularly as both funds reported gains on the valuation of private portfolio companies.”
However, the discount between the stock market’s valuation of SoftBank Group and the rising value of its listed assets still stands at close to 50 per cent, according to analysts.
Boodry said in a note to clients that “markets have been hesitant to allocate full value to short-term changes” in net asset value, while others said the discount reflected a diminishing faith that Son was picking the right strategy in his investments.
“The market doesn’t like his shift into early-stage investments given the probability of success is lower than late-stage investments,” said David Gibson, an analyst at MST Financial, who added that the discount also represented a judgment on how soon the IPO market might revive.
“The market is not convinced capital markets are open yet and hence Son cannot realise capital values,” said Gibson.